Brazil states demand less austerity to salvage fiscal pact

BRASILIA Dec 1 Governors of cash-strapped
Brazilian states on Thursday will demand President Michel Temer
relax the terms of an austerity pact announced last week aimed
at closing their yawning budget deficits, Wellington Dias,
governor of Piaui, told Reuters.

Disagreements between the federal and state governments over
the austerity deal to assuage their financial woes has raised
fears of a full-blown crisis that could stoke a recession
already threatening to stretch into a third year.

Dias, a member of the opposition Workers' Party who heads a
forum that represents all governors, accused the government of
trying to impose harsh measures in exchange for revenues from an
asset repatriation amnesty that states are entitled to.

To salvage the deal, billed last week as a national pact,
Dias said governors will propose measures to limit spending and
cut pension deficits in Thursday's meeting with Temer.

"There is a thread of hope," Dias told Reuters. "We are
willing to adopt concrete measures this year."

Those include raising the welfare contribution of civil
servants, limiting spending on payroll to 46 percent of tax
revenues, and creating investment funds, he said.

That falls short, however, of the government's demands for
states to freeze wages for two years, cut expenditure on
contractors by one-fifth, and overhaul their pension systems.

Dias and other governors have complained the government's
suggested measures could suffocate their economies amid the
deepest recession in memory.

Newspaper Valor Economico said the government is considering
drafting legislation similar to companies' bankruptcy law to
help states that are in the worst financial shape.

The finance ministry declined to comment.

Two years of back-to-back economic contraction has dragged
down the revenues of states and cities now struggling to pay
hefty pension and payroll bills.

Rio de Janeiro state, which hosted the Olympics this year,
is facing perhaps the most acute crisis. It has failed to pay
teachers, doctors and firemen and to maintain public services.

Violent street protests against an austerity package in Rio
have put the Temer administration on alert, with some officials
worried they could spread to other states and erode the already
weak popularity of the president.
(Reporting by Alonso Soto; Editing by Daniel Flynn and
Bernadette Baum)

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